Proposed New Zealand legislation

Currently an Inland Revenue Department sponsored bill sits before Parliament having had its first reading. This bill introduces a new tax framework for the transfer and payment of overseas pensions to New Zealand based residents. The essence of the bill is to simplify the complex existing tax framework and to tax based on the movement of funds into New Zealand – whether in the form of a transfer to New Zealand or payment received from the overseas scheme. The framework basically states that the longer that you have been in New Zealand the greater your tax liability will be, as the more of the payment you will need to include in your tax return.

You have four years from your return/entry into New Zealand where no tax accrues thereafter the amount that you must pay tax on when you receive a lump sum or transfer is as follows:

Schedule year

Schedule year

Schedule year

0

4.76%

9

44.39%

18

78.75%

1

9.45%

10

48.45%

19

82.28%

2

14.06%

11

52.45%

20

85.74%

3

18.60%

12

56.39%

21

89.16%

4

23.07%

13

60.27%

22

92.58%

5

27.47%

14

64.08%

23

95.83%

6

31.80%

15

67.84%

24

99.08%

7

36.06%

16

71.53%

25

100.00%

8

40.26%

17

75.17%

So if you receive $100,000 lump sum from your overseas scheme and you have been living in New Zealand for 20 years you will declare $85,700 in your tax return as income and pay tax on it at your marginal tax rate. However, it is proposed that any transfers that occur prior to 1 April 2014 will be able to declare a rate of 15% of the transfer value to be included in the tax return of the transferring individual.

So what action is required based on this proposed legislation:

People that have been in New Zealand for 7 years or more

For people that arrived in New Zealand prior to July 2006 should transfer their pensions to New Zealand now. The reason being is that the tax benefits for doing so are greater than if left overseas and the tax liability easier to stomach.

The big winners in this should be those with public sector pension schemes, such as NHS, Armed Forces, Police, Local Government Authority and Teachers. The reason for this is with interest rates in the UK at historic lows the transfer values of these pensions are very high (see our guide on defined benefits schemes)

Charter Square can help with transfers that will allow full future flexibility to pay fees, tax bills and give options even if they leave New Zealand – just send your details through to us here and we will contact you.

Most New Zealand residents who have already transferred will now have a tax liability

The IRD’s enforcement unit intends to take action on those that have transferred in the past and believe only 70% of transfers have complied with tax rules. If the transfer has not occurred within the four-year non-residency period or the individual was not paying tax under the FIF prior to the transfer then tax is due on the transfer.

The best option will be to pay tax on 15% of the transfer value (as other methods are complex and will probably cost more in tax advice). Here is the IRD statement on what is happening post 1 April 2014:

“In the absence of the 15% inclusion option, Inland Revenue’s compliance (i.e. pre-audit) activity – which has been deferred pending this policy review – would recommence. The application of existing law, plus use-of-money interest and late payment penalties, would be expected to result in significantly higher tax burdens for most people. The 15% inclusion option is therefore a concessionary and voluntary alternative to the existing law.”

If you have previously transferred your pension to New Zealand and have not paid any tax prior to the transfer then contact us now.

People in New Zealand less than seven years

People who have not been in New Zealand for seven years should hold fire as the best option would be to transfer post 1 April 2014 as the penalty charge and current tax regime will probably make it more economic to do so. However, these clients should start to prepare for the pension transfer process by getting all the pension transfer documentation in place. To find out what you need to do to start getting ready contact us now.

Please note: Charter Square is not a firm of authorised financial advisors, nor are we tax specialists. The above information is based on our current understanding of the proposed legislation that resides before the Finance and Expenditure committee of the New Zealand Parliament.

The content of this website is updated regularly, however, neither Charter Square nor any of its agents, employees or representatives warrant its accuracy or completeness and any decision made on the basis of the content of this site is at the decision makers liability. Should you wish to make a complaint about Charter Square Services please do so through our internal complaints procedure by emailing complaints@chartersquare.co.nz